Stop Thinking Short-Term When It Comes To Social Investment

Investing in social programs improves social conditions and, as a consequence, improves people's lives. That's fairly obvious. What hasn't always been as obvious, however, is that such social spending doesn't tend to come at the cost of economic growth. There is increasing recognition among economists that investing in human beings produces a positive return on investment.

One study of 15 European countries in the 1990s and early 2000s showed that each dollar spent in health and education can return as much as 1.7 times the original investment. By comparison, tax cuts, often cited as key for stimulating growth, actually tend to return less to the economy than is spent.

In other words, social spending can be a powerful economic stimulus at the same time as resulting in happier, healthier people. If this is the case, why don't we invest more in improving social outcomes?

Two organizations, the J. W. McConnell Family Foundation and Upstream are formally proposing to the Public Sector Accounting Board to change how things are done to allow the amortization of evidence-based social investments to be reflected in public accounts. Here's how it would work.

With much government spending, and particularly in relation to health, a large proportion of funding goes to responding to illness and other problems. Preventable diseases, such as diabetes and hypertension, place heavy burdens on strained healthcare budgets.

Our justice system is similarly dysfunctional -- imprisoning a disproportionate number of Indigenous people for whom early intervention could deliver better outcomes. Rather than acting upstream to create the conditions for good lives for Canadians, we wait for those lives to fall apart before we react.

Common sense dictates, and health economic research demonstrates, that the earlier we can intervene in addressing a problem, the less damaging and costly that problem will be and the higher the return on the investment.

For example, a program that provides universal access to high quality early childhood education is an investment that pays off substantially in the long-term. The evidence from programs addressing autism, school violence, child and youth mental health, homelessness, dementia, among many others, supports the advantage of early intervention.

The impact of such large-scale interventions would be substantial, but the fruits of such investments in upstream action would not necessarily be seen immediately. The cumulative effects over the lifetime of today's children, or those not yet born, would be one of the real measures of success. The other would be the gradual reduction in the costs of today's social safety nets, which at present are greatly imbalanced towards late intervention or "downstream" responses.

And therein lie the objections and the obstacles to bolder social investments.

Being able to spread those early intervention investments over the lifetime of the predicted effects would allow governments to take meaningful action.

Some would lay the blame for this inertia on the political cycle, with politicians wanting to see immediate results that can get them re-elected. There is likely some truth to that, but there is also a structural, financial barrier that limits our ability to spend in the most effective way.

When a government builds a bridge or a hospital, it's recognized that the benefits of that investment are spread out over decades, so the costs can be spread out over that same extended period. This is called amortization, and it is an essential financial tool allowing us to build expensive infrastructure now while enjoying its use over the long term.

However, when it comes to social investments, no such option is available. All of the costs of a social program are borne in the year they are incurred. The return on that investment could be much larger, but the cost of getting started is prohibitive.

Being able to spread those early intervention investments over the lifetime of the predicted effects would allow governments to take meaningful action on the factors that improve the quality of our lives. It would allow action on the social determinants of our health and well-being now, rather than at some hopeful moment in the future that may never come. Yet, existing public accounting rules don't permit government to spread their upstream investments over time -- even if they demonstrably save the government money and improve the quality of life of Canadians.

Changing the public accounting rules to allow for the amortization of certain social investments is a potential antidote to austerity budgeting and short-term thinking.

Amortization for social investments would be a chance to use financial mechanisms invented for another purpose to enable us to not only build bridges of concrete, but to build bridges to a brighter future.

It's time the Public Sector Accounting Board of Canada added a new standard for intangible assets that permits the amortization of qualifying social investments. It's a novel approach to mobilizing the resources we need to build a country that makes the most of its greatest asset: its people.

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Federal Budget 2016 Highlights

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The Liberal government delivered its maiden budget Tuesday, March 22. A deficit of $29.4 billion in 2016-17, nearly three times the $10 billion promised during the fall election campaign, and a projected deficit of $17.7 billion in 2019-20 rather than the balanced budget that was promised in October.
(Source: The Canadian Press)

One of the earmarks of the budget is a commitment to spending on aboriginal issues. This includes:
- $2.6 billion over five years for primary and secondary education on First Nations reserves, including language and cultural programs, plus $969.4 million over five years for education infrastructure.
- $1.2 billion over five years for social infrastructure for Aboriginal Peoples, including First Nations, Inuit and northern communities.
- $10.4 million over three years for new women's shelters in First Nations communities, and $33.6 million over five years and $8.3 million ongoing for support services.
- $40 million over two years for the inquiry into missing and murdered aboriginal women and girls.
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(Source: The Canadian Press)

The Liberals will be changing the structure of Canada's child benefits, ending income splitting and other tax credits for families and parents.
This means:
- $10 billion more over two years for a new Canada child benefit, absorbing and replacing both the Canada child tax benefit and the universal child care benefit. Targeted to low and middle-income families, the government says the new benefit provides an average increase of nearly $2,300 in 2016-17.
- An end to income splitting for couples with children, the children's fitness tax credit and the children's arts tax credit.
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(Source: The Canadian Press)

The government will spend $2.5 billion over two years on a suite of changes, including reducing the required work experience for new entrants and re-entrants; halving the two-week waiting period; extending a pilot project to allow claimants to work while collecting benefits; simplifying job-search requirements; and extending the benefit eligibility window in specific regions with a higher unemployment rate.
(Source: The Canadian Press)

- $5.6 billion more in benefits to veterans and their families over five years, including a disability award that increases to $360,000, retroactive to 2006, and an earnings loss benefit to injured vets of 90 per cent of pre-release salary. The government is also re-opening nine veterans' service offices across the country and adding a 10th.
- Planned National Defence purchases worth $3.7 billion — ships, planes and vehicles — are being deferred indefinitely.
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(Source: The Canadian Press)

The budget includes $3.4 billion over five years to increase the guaranteed income supplement top-up benefit by up to $947 annually for single seniors, and restore the old age security eligibility age to 65 from 67.
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(Source: The Canadian Press)

The Liberals broke a major campaign promise to cut the small business tax rate. Instead, the rate will remain at the current 10.5 per cent on the first $500,000 of active business income.
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(Source: The Canadian Press)

The Liberals will spend $1.53 billion over five years to increase Canada student grants to $3,000 from $2,000 for low-income students, to $1,200 from $800 for middle-income students and to $1,800 from $1,200 for part-time students.
$2 billion over three years is also earmarked for a new strategic investment fund for infrastructure improvements at colleges and universities, in partnership with provinces and territories.

The Liberals' green infrastructure plan includes:
- $2.2 billion over five years in water and wastewater treatment and waste management
- $2 billion over two years for a low-carbon economy fund
- Over $1 billion over four years to support future clean technology investments
- $345.3 million over five years to Environment and Climate Change Canada, Health Canada and the National Research Council to take action to address air pollution.
(Source: The Canadian Press)

The Liberals will spend $500,000 to help understand the role of foreign homebuyers in the country's housing market.
The government says comprehensive and reliable data on the number of homes sold to foreign buyers does not exist right now.
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(Source: The Canadian Press)

The marquee Liberal commitment to Syrian refugee resettlement could end up costing taxpayers close to $1 billion.
The budget provided an additional $245 million over five years to bring in the remaining 10,000 people needed to meet the Liberal promise to resettle 25,000 Syrian refugees by the end of 2016.
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(Source: The Canadian Press)

$142.3 million over five years will be spent to add new national parks and improve access during the 150th anniversary of Confederation.
(Source: The Canadian Press

The Grits will provide up to $178 million over two years for the provinces for urgent affordable housing needs.
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(Source: The Canadian Press)

The budget earmarks $38.5 million over two years to strengthen and modernize Canada's food safety system.
(Source: The Canadian Press)